Legal Shareholder Protection and Corporate R&D Investment

60 Pages Posted: 20 Mar 2012 Last revised: 15 Aug 2013

Gang Xiao

Renmin University of China - Hanqing Institute

Date Written: August 12, 2013

Abstract

This paper investigates the effects of shareholder protection law on corporate R&D investment. I find that the institutional protection of shareholder benefits reduces both underinvestment and overinvestment in R&D projects. Legal shareholder rights significantly increase R&D investment for firms that may underinvest, but reduce R&D for firms that may overinvest. Shareholder protection further enhances the growth of firms in R&D intensive industries, and promotes the economic growth of innovative countries. The results consistently show that enforcing stronger legal shareholder protection can help firms achieve an overall more efficient capital allocation to productive R&D investment.

Keywords: Legal shareholder protection, underinvest, overinvest, R&D

JEL Classification: G15, G31

Suggested Citation

Xiao, Gang, Legal Shareholder Protection and Corporate R&D Investment (August 12, 2013). Available at SSRN: https://ssrn.com/abstract=2024686 or http://dx.doi.org/10.2139/ssrn.2024686

Gang Xiao (Contact Author)

Renmin University of China - Hanqing Institute ( email )

59 Zhongguancun Street
Beijing, 100872
China

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